Review of Industrial Organization 15: 303–320, 1999.
© 1999 Kluwer Academic Publishers. Printed in the Netherlands.
Heterogeneities within Industries and
DENNIS C. MUELLER
Department of Economics, University of Vienna, Bruenner Str. 72, A-1210 Vienna, Austria
Austrian National Bank, Otto Wagner-Platz 3, A-1090 Vienna, Austria
Abstract. This paper tests whether the results from standard structure-conduct-performance [SCP]
models estimated at the industry level are sensitive to the degree of heterogeneity of the ﬁrms in the
industries. Industries are separated into homogeneous and heterogeneous categories depending on
whether the proﬁt rates of ﬁrms within an industry converge on a common value or not. In “homo-
geneous” industries we ﬁnd that both the long-run projected returns on assets for the industries and
Bureau of Census price-cost-margins are well explained by variables usually included in SCP models,
as in particular industry concentration. In contrast, few if any of the usual SCP-model variables are
statistically signiﬁcant in the regressions for heterogeneous industries.
Key words: Structure-conduct-performance models, heterogeneous industries.
The basic framework of the structure-conduct-performance paradigm [SCP] was
developed by Edward S. Mason (1939), and Joe S. Bain (1954, 1956).
relationship running from market structure to ﬁrm conduct, and from ﬁrm conduct
to industry performance is assumed. The focal point of the analysis is the industry,
and its performance is measured by some form of proﬁt ratio, π. The ability of
ﬁrms in an industry to collude is assumed to be related to industry concentration as
measured by say the 4-ﬁrm concentration ratio, C
. A typical SCP equation would
look as follows:
π = α + βC
+ γB + µ, (1)
The authors are respectively, Professor of Economics at the University of Vienna, and economist
at the Austrian National Bank. The research was funded in part by a grant from the Jubiläumsfonds of
the Austrian National Bank, project No. 5996. The statements made are the opinions of the authors,
and do not necessarily reﬂect the positions of the Austrian National Bank.
For surveys of the literature see Schmalensee (1989), Scherer and Ross (1990), Hay and Morris
(1991), Martin (1993), and Shepherd (1997).